Bank Mortgage Or Private Mortgage?Deciding between a bank mortgage and a private mortgage can be challenging. They both have their benefits and drawbacks. This article will present both to help you decide which will be the best option for you. Bank Mortgage The traditional option chosen by many consumers, a bank mortgage can be anything from a common fixed rate mortgage to an adjustable rate mortgage, or even a jumbo loan. Terms for a bank mortgage are usually very specific on everything from how long the life of the loan will be to the amount of money required for a down payment. In addition, there are also strict requirements for qualification, such as a minimum credit score, a solid job history, and proof of income. Typically, there are also restrictions on the type of dwelling you may apply the mortgage to. Some alternative housing options such as mobile homes or yurts may not qualify as eligible for a mortgage. If you meet these requirements, especially having a credit score that exceeds the minimum, a bank mortgage could be right for you. Use a mortgage calculator to get an idea of what your options will be once you choose a lender to apply with. Private Mortgage A private mortgage, also known as a personal loan, is an agreement between you and a person or business unrelated to a bank. This can mean anything from a friend or family member to a private loan officer. A private mortgage is vastly different than a bank mortgage. Though they can be difficult to secure--especially in the large amount needed to purchase most homes-- they are usually easy to qualify for, particularly if you have a personal relationship with the lender. Credit scores are less significant usually in these types of loans, and sometimes may be the only option for those with severely negative credit history. They are also an option for those who wish to purchase one of the aforementioned alternative dwellings not qualified for a bank mortgage. However, strict documentation will be necessary to protect both parties in the loan agreement, even among family members. Issues such as when payments are due, whether or not interest will be accrued, and whether prepayment is allowed should all be discussed. Insurance of the property that the private mortgage will be placed on is also imperative, as you will still be responsible for repayment even if the property is damaged beyond repair. Settling what will happen in the event of financial difficulty on the borrower’s end is also an important item, and can help avoid a large amount of strife, especially between friends or family. Involve a lawyer when drawing up these contracts and documentation, as their advice can be extremely helpful for those unused to property legalities. Whether you decide that a bank mortgage or a private mortgage is right for you, always do your research and compare all your options before choosing. Being an informed consumer is invaluable, and the tools on Lender 411 are a great place to start. |
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